Puff the Magic Dragon…

Lived by the Sea.

For you baby boomers you may remember the folk group Peter Paul and Mary (PP&M). During the decade of unrest in the 1960s they successfully blended social commentary into their music. The trio had memorable hit songs including: “Puff, the Magic Dragon” and “If I Had a Hammer” They also helped promote early songs of Bob Dylan’s like “Blowin’ in the Wind” and John Denver’s “Leaving on a Jet Plane”.

The PP&M hit “Puff the Magic Dragon” is interesting in many ways. Peter (Yarrow) wrote the song based on a fellow Cornell University classmate’s poem a few years earlier. After reaching “hit” status, Peter searched and found Leonard Lipton, the poem creator. The group would end up voluntarily giving him half of the song writing credits (read: enormous, never ending royalties). Maybe we can all learn something about how people rolled back then, as in, professional decency.

What is also an interesting is the lyrics of “Puff…” was the target of a 1964 Newsweek magazine article speculating the song was about smoking marijuana. If you listen or for most of us re-listen to the lyrics there is a high possibility the song has two meanings. Fast forward to today and marijuana is much more mainstream then in previous decades. And it’s an investable asset class with numerous public investment choices! As this is a wealth management publication, perhaps we can weed through some market history and lessons together.

Tilray, a major Canadian cannabis producer was in the news last week. I think it’s a great place to roll up our sleeves and contrast narrative stocks from fundamental investing.

The company is trying to back door its way into the US market with a clever and complicated deal for the convertible debt of US cannabis retailer MedMen Enterprises. Tilray has promoted a vision of achieving $1 billion in sales from US cannabis by 2024. And most likely this deal will do little towards that goal. The stock was up 3% on that news, trading at roughly $14/share However, this $14 level, is less than 10% of its October 2018 price per share value of $141. What happened?

Well, when the smoked cleared, investors began to figure out US penetration was going to be more difficult, more regulated and less profitable than what was initially reflected in pot stocks a few years back. This is the problem with narrative or “story” stocks, there is no underlying support if/when the promises fall short.  I would suggest we may “re-learn” some lessons in the next few quarters. Not all narrative stocks will miss a high note or two, but investments supported by numbers (fundamentals) deserve an important allocation in your portfolio.

Speculation is fine but as Bill Clinton once referenced, you don’t have to inhale to enjoy.

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